caller: i listened to some of your callers, some of your democratic callers. and i just -- it just boggles my mind how they think. and the gentleman before me, he was saying about the f.b.i. i would just really like to ask him, did he say the same thing about what comey did? would he say, ok, if what he's saying, can they go and now, if the f.b.i. would go and get comey, will they raid comey's house? if he would say that, go to it. host: ok. cindy, i have to jump in, apologies. up on capitol hill the senate banking committee is convening for an oversight hearing over the securities and exchange commission with the s.e.c. commissioner. they're going to be talking about cryptocurrency and other wall street issues. live coverage here on c-span.

[captions copyright national cable satellite corp. 2022] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit ncicap.org] senator brown: the senate committee will come to order. today's hearing, as usual, is in hybrid format. witnesses are in person. the witness, mr. gensler -- nice to see you. the members have an option to appear in person or virtually. welcome back, chair gensler, to the committee. families don't measure by the stock market. that's why the senate and still new biden administration we worked to create an economy that delivers results for people who get their incomes from a paycheck, not an investment portfolio, raising wages and good-paying jobs and lowering costs means fighting the

corporate price gouging that so often hurts consumers and the unfair labor practices that so often hurt workers. it means investing in american manufacturing, the workers and farmers who drive it. it means making sure our financial watchdogs keeps our economy and our markets stable. at the s.e.c., that includes going after companies that try to cheat the market. chair gensler is doing that very well. it means strengthening corporate disclosures to stay out of risks like climate change. it means looking into the practices of private equity and hedge funds as they stretch their tentacles into more and more areas of our economy. it's been an eventful year. this year the senate confirmed president biden's two nominees to the s.e.c. i know both got to work on the issues before this commission, dedicated staff have been busy. republicans on this committee have bellyached and i'm sure as well today about your ambitious agenda. if wall street and its allies are complaining tells me you're joining your job.

you put america's savings first. you focus on transparency, a concept critical to making sure our markets for everyone, not just insiders, not just corporate execs. the s.e.c. must continue making enforcement a priority. new schemes to separate people from their hard-earned money or to cheat the rules for themselves. under your watch, s.e.c.'s increased prosecution for insider trading, which as, of course, as you know under the trump administration had fallen to the lowest level at a generation. in april, this committee considered a reed-menendez bill to pass. the house passed a similar bill. the senate must. we saw the bipartisan work of our committee members to improve transparency and fight for fraud. in 2020 senator kennedy, whose since sitting to my left, more or less, and senator van hollen pushed for the passage of the

holding foreign companies act, with china-based auditors that refused to comply with our oversight laws, because that law jump-started negotiations, the pcoab signed an agreement with chinese authorities that would finally allow auditors to begin in sections. in march the president signed an executive order establishing a whole of government strategy for digital assets while agencies across our government look at how we respond to the growth of cryptoand best protect americans' money, we know the s.e.c. continues to enforce the laws. going after cryptotokens that violates securities law, shutting down cryptoponzi schemes, having crimes in crypto. in the house banking and unan affairs committee we looked at how they play a role in illicit finance. we heard from treasury undersecretary who testified on the president's working group report on stable coin. this morning the ag committee

downstairs in senator -- and senator smith and i on this committee on the democratic side sit on both of these committees and considering is cryptobill that focuses on digital commodities. i thank them for their work for creating a cryptospace. we need to be careful in drawing these lines. in this lines we must prevent gaps and close loopholes on abuse. it's not easy. that's why the action of the agriculture committee and chair gensler is familiar why that action is welcomed but we know it's not enough. when congress wrote drank we fixed the problems in the oversight of the over-the-counter derivatives market. it's a lesson we need to remember thinking of the damage done prior to when it comes to crypto. our regulators need to make sure that our investors and consumers come first. work on climate risk disclosure

understands risk and provide transparency and xashlt, clarity and uniformity are key. if only a subset of companies provides disclosure and they do so in whatever form they want, that doesn't serve everyone. investors outside the u.s. benefit from standardized climate risk disclosure. it's time the u.s. market did as well. the s.e.c.'s recent rule proposal to require more disclosure about corporate stock buybacks will also bring much-needed transparency to the market. thank you for that. we know stock buybacks are a big problem. they distort the market. they funnel profits to executives at the expense of long-term investment in workers and in innovation. the process allowed for these buybacks has only made them more manipulative. for decades companies have been able to announce stock buybacks to juice their stock price but they only provide details months later on how, when or whether they even completed their plans.

under s.e.c.'s new proposal, the market and the s.e.c. would understand when companies are buying their stock and if executives are buying or selling at the same time. taken together with unprecedented steps in the initial -- in the inflation reduction act to finally tax these buybacks, i appreciate senator castro and others supporting that. these are the first steps we've seen in years to rein in this wall street scheme. another example of a president -- a new president of the united states who fights for workers and sides with workers. chair againstler, i look forward to hearing more about other ways the s.e.c.'s working to hold bad actors accountable and protect americans who invest their hard-earned money in the markets. senator toomey. senator toomey: thank you, mr. chairman. chairman gensler, welcome back to the committee. good to see you again. the s.e.c. as we all know has a critical role to play in protecting investors, maintaining orderly markets and facilitating capital formation. unfortunately, some of the

s.e.c.'s recent actions and inactions raise concern about how well it's carrying out this important mission. take, for example, the s.e.c.'s handling of crypto lending platforms like celsius and cels foager. they had rates as high as 18%. the firms would then lend that crypto to presumably other larger investors to make short-term bets on the crypto markets. but once the selloff began, many borrowers couldn't pay their debts and they froze customer accounts. the s.e.c. did taken forcement action against block five for similar activities last winter. yet, somehow let celsius and voyager continue through this spring when they found themselves in bankruptcy with investors staring at billions in losses. where was the s.e.c.? and where's the s.e.c. been in clarifying the rules of the road for crypto market participants? the chairman insists in his written testimony that the vast majority, end quote, of crypto

tokens are securities. but he's also acknowledged that bitcoin is not. new, presumably that's because bitcoin is so thoroughly decentralized. but that naturally raises the question, where on the continuum does a token crease to be a a security? they don't have a claim on the issuer. doesn't it make them different from the vast majority of ordinary securities? and if the chairman is right that most tokens should be considered securities, then is he himself states in his written testimony and i quote, it follows that many crypto intermediaries are transacting in securities and have to register with the s.e.c. in some capacity, end quote. but crypto transactions typically can be settled in real time without intermediaries. crypto intermediaries serve different customer needs, they have different models and pose different risks than traditional intermediaries. all that raises the question,

what is the crypto road map for these intermediaries to register? stepping back, i think there's a larger problem here. as bloomberg columnist matt lavigne put it, chairman gensler's posture is he should be writing the rules for crypto but not write them. i just don't see how that can work? end quote. i think mr. lavine has a good point. given the novel nature of these tokens, really congress ought to step in and provide clarity. in particular, we need to revisit the definition of security as part of a larger effort to tailor a regulatory framework that's calibrated to the unique risks and activities of the crypto market. as i said, crypto tokens have varying degrees of decentralization. they usually do not have a financial claim on the issuer and typically can be settled in real time without intermediaries. these are very major and important differences from traditional securities and they merit a clearly stated and tailored regulatory framework. now, while the s.e.c. has failed to provide the regulatory

clarity in the crypto markets it's been issue ewing numerous controversial and burdensome rules and proposed rules in the ordinary securities market. top of that list is the s.e.c.'s climate disclosure rule. public companies are already required, legally required to disclose material climate change information. the proposed rule, however, would go much further. to require disclosure of exceedingly extensive global warming data. this data will be enormously expensive to collect but almost will not be material to the company's finances. for annual reports alone the s.e.c. estimates that aggregate external compliance costs for issuers will increase from $1.9 billion per year to $5.2 billion per year if the s.e.c.'s proposed climate disclose rule becomes effective. the s.e.c., again, estimates the external compliance cost of a company going public will increase by more than five times at a time when ex-sensitive regulatory costs are already resulting in ever fewer

companies going public. the cost of compliance will be more material to the investor than the information itself. but, of course, the climate disclosure rule isn't really about informed investment decision. it's about equipping climate activists with data to run political pressure campaigns against companies which will often be to the detriment of shareholders. the end gauge is to discourage capital investment in oil and natural gas and other traditional energy industries and we've seen how that's working out in europe. the s.e.c. is wading in to controversial debates far outside its mission and expertise and doing it without the legal authority to do so. and in the process, the s.e.c. risks politicizing the agency, slowing economic growth, increasing inflation and possibly even undermining national security. so given the importance of these issues, banking committee republicans have written to the s.e.c. asking basic questions about how the s.e.c. developed the climate disclosure rule

instead of providing real substantive answers, the s.e.c. has been stonewalling us. while the s.e.c. may not want to answer to congress on its climate disclosure rule but ultimately the s.e.c. will have to answer to the courts, which should make it nervous. the supreme court has repeatedly held, and i quote, congress does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions. it does not, one might say, hide elephants in mouse holes. end quote. this summer the supreme court applied this in the west virginia vs. e.p.a. case. there it ruled that the executive branch and its agencies cannot use novel interpretations of existing law to pretend they got a legal authority to support sweeping policy changes, including on climate change, that congress never intended. well, that's precisely what the s.e.c. appears to be trying to do with this climate disclosure rule. the s.e.c. should consider itself to be on notice by the court that the separation of powers still exist and will be

upheld. thank you, mr. chairman. senator brown: thank you, senator toomey. today we'll hear from securities and exchange commission chair gary gensler. this is his annual trip here but he sometimes does that more often and we thank him for that. and chair gensler, you're particularly welcomed because this will be -- we have a very good well-above-average turnout today. enjoy that. but thank you for joining us, chair gensler. mr. gensler: chair brown, ranking member toomey and members of the committee, i am honored to appear before you today. thank you for confirming our two new commissioners, mark uyeda who worked up here on the hill and jaime lizárraga. terrific commissioners. it's welcomed we have a full complement. as is customary, i will say i'm speaking for myself. i don't speak on behalf of the fellow commissioners or the staff in this hearing.

i'd like to start by discussing two key years in policymaking, 1933, 1934. i think it's when chair fletcher sat in this seat, chair brown, if i recall my history right. it was the middle of the great depression. president roosevelt and congress addressed this crisis through a number of landmark policies. amongst them, congress and fdr came together to craft the first two federal securities laws. 1933, president roosevelt also suspended the use of the gold standard. in other words, in those two critical years, one could say we replaced one gold standard with what i'd like to say the other, the securities laws. i do believe the core principles of the securities markets have contributed to america's economic success and geopolitical standing. they got to decide what risk to take but there was a cop on the

beat where there was fair, truthful disclosure. as we execute our mission to protect investors, maintain fair and orderly and efficient market and secure capital formation we can't take the leadership for granted, though. even gold medalists, especially gold medalists, constantly train to stay ahead of the competition and i do thank senator kennedy and van hollen to help us a little bit with this issue with china. we must remain vigilant opportunities to drive integrity, resilience, across our arena. first, markets work best when they are efficient. now, what does that mean? that means there's competition, there's transparency in the middle of the market when we lower the cost in the middle, that means issuers have lower costs to raise money and investors get better returns. so we've done a lot but we have not updated our national market system, our equity system in 17 years. imagine if you had in your pocket a phone that was 17 years

old. you'd think, oh, my god, maybe i should update that phone. technology moves fast. we're looking at the efficiency of our treasury market and, yes, our private funds market. issuers and investors also would benefit from greater competition because it lowers the cost of capital, as i said. second, our system works best when there's integrity in the market. hence, we have rule proposals to bring greater integrity in the market around special purpose acquisition companies. the insiders trading plans and so forth. but another area is crypto, as ranking member toomey raised. of the nearly 10,000 tokens in the crypto market, i do believe the vast majority are securities. offers and sales of these securities tokens are covered by the securities laws. and given that, as the ranking member quoted me of saying, it follows many crypto intermediaries are transacting in securities and have to register with the s.e.c. in some capacity.

i would note chair fletcher was in that seat, there was not a central electronic clearing and you could exchange the security person-to-person in a paper form. thus, staff is working with market participants to help ensure investors get time-tested protections in the market. in that work and any work that congress does, i do think we have to make sure that we don't inadvertently undermine the securities laws underlying $100 trillion capital market. we -- that's the sort of mother lode. that's our capital markets. crypto is 1/100 that size. third, markets work when they're resilient. both in normal times and stress. history tells us we'll have stresses in the future. that's the nature of economics and finance. thus, we have a project on resiliencies. that includes shortening the settlement cycle. it includes work we're doing in the treasury markets and around

money market funds and cybersecurity. in all our work, we are anchored by the laws congress passed, the court's interpretation of those laws, economic analysis and public input. as the commission, we benefit greatly from public input, including from congress and this committee members. and i stand ready to meet with any of you one-on-one nearly anytime you want. we benefit from that feedback. our capital markets are the gold standard. let's do everything we can to keep them that way. i thank you. i look forward to questions. senator brown: thank you, chair gensler. and i think what you said and i heard you say this before in smaller groups publicly, bigger groups that we can't allow the crypto market to undermine the $100 trillion capital market. that's fundamentally our job here. consumer protection, all that, but fundamentally that's our job in the banking, housing, urban affairs committee and that is yours. you made improving transparency and corporate disclosure a

priority in addition to the climate disclosure and buyback information, i mentioned earlier, the commission is addressing cybersecurity risks, including visibility, if you will, in stocks. discuss briefly why it's critical we improve these types of disclosures, the types of disclosures for large and small investors and for how markets operate? mr. gensler: i would say there's two core things. it goes back to this founding. one was this basic bargain that investors get to decide as long as they get the full and fair disclosure, material disclosures but full and fair disclosures and they get to decide and you can't defraud them and mislead them. that lowers the cost of capital, actually, because then there's trust in the market. the second thing that transparency does is it helps promote competition in the markets. and competition, that's the nature of things. it promotes our economies as

well and that competition, amongst intermediaries, amongst people trying to raise money from the public, and so i'd say those are the two things, not to mention, also, market integrity. senator brown: thank you. i noticed today and commented and senator toomey has confirmed this that we've seen -- we will see an unusually high turnout of republicans for this hearing today. i think that the turnout of republicans, many of whom against all evidence, many republican senators, many whom against all evidence are climate deinsiders will i assume ask you about that. let me go with that. on climate risk disclosure, specifically, discuss why your agency is propose diagnose -- what you're proposing is not making climate policy but rather how improving disclosure helps investors? mr. gensler: it's because right now hundreds of companies and

investors representing trillions -- not trillions but tens of trillions of dollars of assets under management are in this conversation already. investors get to decide. we're not a merit regulator. some people think we might be. we're not. we're disclosure-based regulator. but investors today want to know about climate risk because it matters to the future path of the performance, financial and other performance. what are customers going to do? what's the supply chain going to do? what might happen around the globe because our u.s. issuers are operating in many jurisdictions around the globe? so it really does go back into when i buy or sell a stock or vote a proxy, climate risk matters to those investors. we have a role to help bring some consistency to those disclosures that are already happening. senator brown: you're clearly saying you're not a merit

regulator but a disclosure regulator is really important here. i hope my colleagues -- i hope they remember you said that when they ask the questions. in crypto, the last minute and a half. crypto markets touch securities and commodities laws. my colleagues gave s.e.c. jurisdiction over the crypto market. remind us why it's important -- i'll ask two questions together. remind us why it's important for financial regulators to coordinate oversight to make sure that gaps or loopholes don't exist? and would you agree to continue to work with our committee, the cftc, and the banking regulators to make sure we get this right? mr. gensler: i do commit to that. let me say when i say when it's important to protect the $100 trillion securities markets works is because that's the heart of how we price risk in our financial markets and how investors save. and this committee and the house financial services committee

oversees that and wrote into law that there is one cop on the beat, one regulator. the definition of securities should be i think kind of the exclusive remit of these two committees. i'm looking across the aisle. and the agency that you set up. if we end up with that there's multiple federal agencies defining what a security is and another agency tries to define it, it could undermine what we're doing as to when is a treasury security a security? when is something else in the equity markets or elsewhere security? to your question about working together, we work together with the other federal financial regulators. we just yesterday announced something in the treasury markets that we worked hand in glove with the treasury and the federal reserve. at the cftc -- i love the agency, the cftc. i like the s.e.c. it's like my three daughters. i do want to say we work closely with the cftc with regard to

recent rule we put out. and there are many parties in the markets that are duo registrants. we have duo broker registrants. they're registered with us and the cftc. so on the advisory side. if congress gives the s.e.c. greater authority over, let's say, bitcoin, we will work together. we already worked together in the crypto space. senator brown: your testimony mentioned the enforcement shrank by 5% over the last five years. yet, despite that, the s.e.c. has pursued new cases in crypto, focused on fraud and misconduct for financial professionals and securing admissions of guilt. that doesn't happen often enough. i thank you for doing that. ranking member toomey. senator toomey: thank you, chair. chair gensler, in your written statement you acknowledged there

are some tokens not securities. i know your view whether or not a digital asset is a security is a fact and circumstances analysis. i know your view that the s.e.c. has broad authority. you've also made it clear in the past that bitcoin is not a security. now, some s.e.c. staff have also previously said that -- is not a security. the report characterizes it as decentralized. going briefly and without going in the weeds in this and i acknowledge your belief that most tokens have a large degree of central control but generally speaking, is it fair to say that a significant factor for you in whether or not a digital asset is a security is whether it is centrally controlled or decentralized? mr. gensler: well, i look to the supreme court that's often written about this. probably close to a dozen times in 50 years. and it's whether the investing public is anticipating profits,

and that includes anticipating profits from appreciation as well as from, as you mentioned, rights based upon a common enterprise. the efforts of that common enterprise. senator toomey: i guess another way to put my question -- you haven't answered -- is it possible to have a common enterprise if it's something as decentralized? how could they have a common enterprise? it doesn't central -- isn't centralization necessary to constitute a common enterprise? mr. gensler: you could have some things that are quite open but still have, if the public is anticipating a profit based upon that common enterprise. i'm being careful with my words here to be accurate as best i can. the common enterprise, are you relying on a group of individuals? look, these are not laundromat tokens. senator toomey: you are not asking my question. let me put it this way.

what is it about bitcoin that causes you to conclude it's not a security? mr. gensler: one is there are no group of individuals. senator toomey: right. decentralized. mr. gensler: no group of individuals in the middle that are basically -- and you're not -- in essence, the investing public is not betting on somebody in the middle or six people in the middle. senator toomey: you're choosing not to word -- use the term decentralized but that's what you're describing. it's the decentralized nature of bitcoin, i think, is really what you're getting at. here's my point. i am going to run out of time here. but there are a lot of projects, as you know, that -- decentralization and centralization occurs on a continuum, really, i think. and you've acknowledged there are tokens, plural, that are not securities. i think it's because of this centralization that you come to this conclusion. and my point is, it is not reasonable to fail to provide clarity, to provide the definition of exactly where on

this continuum you have a sufficient common enterprise that it qualifies as a security and where you don't. you said bitcoin doesn't. some of your colleagues have said ethereum doesn't. but a reasonable developer who wants to comply with this doesn't know where this line is drawn. mr. gensler: this is where we might have a difference. we have many factors. it's not centralization versus decentralization. they are the supreme court. there will be debates about other laws. i try to stick to what they say. a common enterprise. i think about a group of individuals in the middle, that developer is in the middle and the investing public is betting on them, counting on them. even if the token might be on a thousand computers. that's not what the supreme court is looking at. it's not about the token being on a thousand computers. it's like a group of developers in the middle. senator toomey: if there is nobody controlling it in the

middle, that's what we call decentralized and that does happen. as you know, of course, the how we -- howie test requires all four of the tests to be met in order for something to be defined as a security. let me move on to another related issue which is -- as i said in my opening statement, i don't think that the s.e.c. has provided a crypto-specific road map to the registry of crypto intermediaries. one example of the problem that arises is the s.e.c.'s consumer -- customer protection rule was written in 1972 and doesn't address how a broker-dealer should hold their block chain private keys, for instance. i know the s.e.c. claims to provide relief but the relief has very onerous contingencies. it's time-limited. and my understanding is very few broker-dealers have been able to comply. i know you said many times you want to have the industry, the intermediaries come in and have a conversation with the s.e.c.

about this. wouldn't it be better if the s.e.c. came out and laid out how you would apply the rules and regulations to these novel devices? mr. gensler: so we're in conversations with a number of these intermediaries across the exchange, the lending, the broker-dealer, the custody space. as i said a year ago in the lending space, people should make no mistake. i think it sounds like you, senator, you and i agree, that the lending platform is under the securities laws. in the exchange space and broker-dealer space, i say people haven't come put in under chair clayton that broker-dealer custody rule that you mentioned. i said to staff, let's use everything in our regulatory tool kit, whether it's exemptive orders and others, to help facilitate and get this industry -- people will not have trust in this space unless it comes into investor protection. senator toomey: i'm out of time,

mr. chairman. i would say my concern is the approach you're taking with these one-off discussions, if it did even result in an opportunity to comply, it would be this idiosyncratic exemptive order negotiated with a single company and that's not a good way to pass rules. it ought to be through the a.p.a. and through a process. mr. gensler: if the chair would forgive me. we've been clear through 70 or 80 actions, they were full votes of the commission, not just staff. secondly, i just look at other times in history. the s.e.c. and the asset backed securities market took 10, 11 years as they would do these, as you say, exemptive orders and do a rule at the end of that 10 or 11 years based upon all that experience. so we actually believe it's worthwhile to talk to the industry, talk to the market participants and get them registered. senator brown: thank you, mr. chair. senator tester of montana is

recognized. this is nci, testing ft, pcrd 22 thank you. thank you -- mr. tester: thank you, mr. chair. recently i led a group of my colleagues writing about your process of a significant number of proposals that the s.e.c. has been working on over the last year. i would think that you would agree that it's important there is sufficient opportunity for stakeholder input and feedback. one of those proposals that i've been hearing about is the enhancement and standardization of climate related disclosures for investors. you probably know that i'm a farmer. this is my wife and i's 45th harvest, as a matter of fact. as a working farmer, i can tell you -- i can understand the importance of considering the impacts of climate change. this year was our second worse harvest due to the drought. last year due to extreme weather conditions was our worst harvest. climate change is real and it appears it is not going away. so we have some issues to deal with. i also know, though, access to

capital and markets to sell our product and to produce our product is really important. and i can tell you i understand the burden of reporting information. i get surveys nearly every day about what i'm doing as a farmer. this week, there were a number of farm groups that were in that i visited with virtually and in person. a number of banks. and they were concerned about this rule. so from an ag production, agriculture standpoint. as you also know, i don't have a lot of options as a farmer. i tell folks when i wake up in the morning and throw a couple hello gallons of diesel fuel in a tractor it's not like i have an electric tractor in the garage that i can use. so i'm pretty well locked in to fuel, diesel fuel, carbon-based fuel at this moment in time. so under this rule, what responsibility would folks in production agriculture,

specifically montana farmers have, for disclosing their emissions? mr. gensler: i thank you for that question. presuming that those farmers are not public company, they don't come under the rule. but we have heard from various farm bureaus and, of course, the american farm bureau federation, zippy duval and i talked about this and other members probably know zippy. and public companies would have an obligation under the proposal with regard to greenhouse gas emissions. their own emissions. and then we say in the rule that they estimate their supply chain emissions if it's material. so it's got a materiality catch, but it's just that they estimate. and we heard some folks in the

farm -- senator tester: community. mr. gensler: the farm community that they're concerned. so we're taking a look at that among the other 14,000 concerns. senator tester: i sell to publicly owned companies. ok. i -- let's take wheat, for example. i sell wheat to a publicly owned company and they start doing their assessment on climate impacts which i certainly don't have a problem with, by the way. what am i as a farmer who sold them grain, for example, or you can say cattle or pick a commodity, if the company says to me, look, if you're going to do business with me, i have to have all this information, what are my recourses? mr. gensler: so what we put out -- again, we got some very good comments and we're working through this. is that that public company you

sell to doesn't have an obligation to ask you specifically. they either need to estimate or if they don't have an estimate, just discuss how they're managing that scope three. but i would say this is what the public comment process is about. we've heard from 14,000 other people. but particularly in the farm community and how we sort of address this to lower the cost. because the intent, senator, is not that -- whether it's the farm community or other community, if they're not public companies, they're not under this rule. senator tester: i got it. but my concern, as i indicated with my previous statement was, we sell to public companies. i mean, the vast majority of the product that's sold is to a public company. and if the public -- and i just bring this to your attention -- and i don't want to repeat myself. if the public company says, hey, we need you, john tester, t-bone

farm, how much fertilizer you use, how much your inputs were, it becomes an issue. especially for the little guy who's, you know, out there running a tractor, fixing that tractor and doesn't have a lot of time to sit in the house behind a utt coulder. mr. gensler: and i'll say two things. one, that's not the intent how we did it, particularly with the safe harbor and only estimates. two, that's the benefit of public comment. that's why this helps us and, of course, we'll put this hearing in the public record, in our public record as our public record as well. senator tester: thank you, chairman. senator brown: thank you. senator tillis of north carolina is recognized. senator tillis: thank you, mr. chairman. i want to fulfill your expectation that some republicans will bellyache during this hearing. senator brown: did you listen to my opening statement? senator tillis: i did. i also listened to senator toomey's. i've been watching in my office. i want to get back to what senator toomey said.

we sent an oversight request several months ago. i think a follow-up on july 21. and looking for a written response to our oversight request. chairman gensler, i know your office and the initial response provided a one-page response that suggests we meet with staff. i'm kind of curious when we could expect specific written response to the oversight request that republicans have sent you? mr. gensler: sir, we do stand ready to -- staff to meet with your staff to walk through the process. the process that we have on any rule we put out to the public and that release was in hundreds of pages. our economic analysis. and the rationale and reasons for that. senator tillis: about 500 500 p

long? mr. gensler: that is correct. that is correct. and we stand ready, again, to meet and walk through that process with you. senator tillis: i guess maybe we can get a commitment. there may be other members who are interested. but absent a written response, getting a commitment from you to meet so we can go through and get the answers to the specific questions we had in the oversight request? mr. gensler: we stand ready to have staff meet to go through and generally talk about the process. i mean, i want to be careful because it's really about to talk about and try to address the questions that you have and the concerns. but, again, this rule is rooted in decades of law and it's about a conversation that's already going on between public companies and their investors and investors i think would benefit if we can bring some consistency to this fragmented disclosure that's helping now. senator tillis: we may follow up with staff, but we're going to continue -- first, again,

congratulations on your confirmation. we'll continue to press on answers to some of the specific questions. but thank you for that. the u.s. treasury market is the single most important market in the world, do you agree with that? mr. gensler: it's the base upon the rest of our capital markets is. senator tillis: it does a lot. it's important to monetary policy. it's important in protecting retirement savings for u.s. workers. we can run down a long list. i think your policy. it's important recent s.e.c. proposal could inadvertently curtail involvement and liquidity in the treasury market. i'm kind of curious, does the commission really intend to require customers to register as dealers? mr. gensler: we put out a proposal earlier this year based on a 1986 law about dealer registration. senator tillis: my understanding is the proposal would classify any firm as a dealer if it

transacts more than a specified amount per month, is that true? mr. gensler: there are two prongs. yes, it had over $25 billion a month. senator tillis: so how would a pension fund that frequently transacts in the treasury market and exceeds the trading threshold set by the commission in order to protect the retirement savings of its members be considered a dealer under any commonsense interpretation? mr. gensler: it's about whether you hold yourself -- the statutory definition is about holding yourself out regularly and transacting in a marketplace. there's not, by the way, that number -- and we go through this economics in the proposal -- would not cover pension funds as we know it today. senator tillis: so the nature of the trading would matter, too? mr. gensler: the -- it's -- the size and scale of the treasury market, as large as they are, it's also that their pension funds aren't trading at those

types of level it's that you mention -- levels that you mentioned. senator tillis: i have a series of other questions but it would probably take me longer to ask it than the time i have remaining. we'll be submitting several questions for the record. again, i want to go back to the oversight request. we need to kind of figure out how we can get the specific answers to the question. i'm happy to have my staff meet with you. but we would also like to get a formal written response to the request that we've now requested a response in writing, a discussion is good, but we -- we'll continue to press for that. thank you. mr. gensler: thank you, senator. senator brown: thank you. senator menendez. senator menendez: last time you came before the committee i asked you to move expeditiously to adopt the recommendations on diversity. and last october, 22 senators, including nine members of this committee, sent you a letter supporting the recommendations. and asking for immediate immediate approval. can you give us an update on the

status of adopting these recommendations? mr. gensler: so i thank you, senator. we've looked at -- there was four recommendations and there are some subpoints in those recommendations. and we -- working -- and i think we informed your staff with regard to two important ones in there. one is a recommendation around guidance, staff guidance on how asset managers are selected and whether their years of service or assets under management could be -- need to be taken into consideration or not and another one is with regard to e.e.o. complaints and how those complaints are shared with other agencies and the like. i think we made some good progress on those two. i feel staff will probably shortly be putting out that guidance. and we continue to look at the other two matters. senator menendez: well, look, i appreciate in a you're giving us

some of these recommendations serious attention. but at the same time i must say i'm disappointed. in so many other areas, the s.e.c., under your leadership, has taken bold steps to protect consumers, to strengthen oversight of markets such as your proposed climate risk disclosure rule. however, when presented with a max noncontroversial unanimous recommendations that would promote diversity in the asset management field, you haven't been as aggressive. so can you commit to make concrete progress on these recommendations by the end of the year? mr. gensler: so, senator, i take very seriously how important diversity, inclusion equity is important. broadly in our society. but to the s.e.c. as an agency, our senior leadership is

probably the most diverse and inclusive that we've ever been as an agency. we continue to lean in to try to make sure that our agency, everybody can bring their best self to work and work and we get the benefit of the talent across this great nation. and in terms of -- in terms of policy, it's held up in court right now. but last last year self-regulat organization, nasdaq put in place a listing requirement with regard to their boards of directors and diversity and that was their decision, not ours. it predated me. we approved that. on these four committee recommendations, as i said, i think we made some pretty good progress on two of them. i think that guidance will be out in the near term. and we continue to work on the others. senator menendez: well, i'd like to highlight one recommendation that i think would be particularly impactful.

the amac recommended the s.e.c. require enhanced disclosure by investment companies and investment advisors with regarding diversity within their workforce and leadership. you and i have spoken about the importance of leadership diversity at your confirmation hearing. i just heard your comments now. i think that disclosure is about diversity is incredibly important, which is why i introduced the improving corporate governance through diversity act. do you agree that enhancing diversity disclosures for advisory firms, investment company boards and consultants would empower investors and fund managers to make more informed decisions? mr. gensler: again, as i said, i think we benefit in our -- in our organization at the s.e.c. and in our great nation by tapping in to the talents across our diverse nation. and we're continuing to look at this recommendation of amac with regard to disclosures.

senator menendez: well, one of the key findings of the amac study is -- for my colleagues -- amac is an advisory board that is created, you know, under the -- i believe it's the s.e.c. so one of their findings is that, quote, investment performance by diverse asset managers is equal to or greater than the investment performance of firms that lack diversity and owner -- in ownership and senior leadership despite differences in size and length of track record. and that's why they recommended that the s.e.c. issue guidance clarifying the fulfillment of fiduciary duty doesn't require automatic exclusion of asset managers who are new to the industry or do not meet a certain threshold of assets under management. in your view, is it necessary for fiduciaries to automatically exclude newer or smaller asset managers in order to fulfill

their duty? mr. gensler: senator, on that, on the guidance, i share that view. i think that what you just said. and i think that's the guidance the staff is working to put out. you're right, the amac is a federal advisory committee. senator menendez: let me close by saying fundamentally, using the excuse of fiduciary duty to exclude women and minority-led firms runs contrary to the actual data. amac study's, a host of studies by mckenzie and others, have repeatedly shown that diversity led firms outperform their nondiverse counterparts. and so given this data, i think that we can agree that new or smaller asset managers being automatically excluded under the guise of fiduciary duty is actually not helping investors. it's harming them. and so that's why i have been

pressing on these issues and will continue to work with you. we hope to have a robust response by the commission. thank you, mr. chairman. senator brown: thank you. senator kennedy from louisiana is recognized. senator kennedy: thank you, mr. chairman. thank you, mr. chairman, for being here today. i want to also thank you for you and your good -- your colleagues' good work on the implementing the holding foreign companies accountable act. can you give us a quick overview about where we are? china, i understand, has come to the negotiating table and you've negotiated a statement of protocol. could you give us an update on the stat uts of -- status of your good efforts? mr. gensler: yes. i want to thank you. you and senator van hollen came in. i think the holding foreign

companies accountable act gave us -- we had numerous meetings with the chinese. we said to the chinese last august, a year-plus ago, that we wouldn't be willing to send the inspectors over to china to look at the audit work papers and the like unless we could get a very detailed prescriptive statement of protocol to eeffectuate the will -- effectuate the will of congress. how can we unless there's somebody in the u.s. that are ordering the auditors, so to speak, investigating. they did sign that. we thought it was important to get that signed. the pcob is sending inspectors over -- i think they're on flights tomorrow because i think it starts monday the 19th. and it takes about eight to 10 weeks to get through. so we'll probably know somewhere around thanksgiving, early

december. and i don't know if the chinese are going to comply. they've told me. i mean, the ministry of finance have told me directly on webex calls and the chinese securities regulatory commission said they'll comply. and it's pretty clear. no redactions in the work papers. take testimony from whomever the pcob wants to take testimony from. they can pick whichever companies they want to look at. senator kennedy: i'm not sure they'll comply either. they moved further toward compliance than at any point in the past. senator van hollen and i have a bill that passed the senate, as you know, being considered by the house to move the deadline from three years to two years with respect to which they don't comply, we tell them to leave our exchanges. and i think that might help if

we can get that passed. i appreciate your good efforts there. and in my last two minutes, i wanted to shift gears on the climate risk disclosure. i don't mean to be critical. i'm trying to understand because i thought senator tester raised some very good questions. what's your best guess of the cost of compliance with your climate risk disclosure rules? mr. gensler: so one, i do support your excel rating foreign companies accountable act from three years to two. it will have the right leverage even if the chinese authorities and the chinese regulators apply for compliance this year, what about next year? what about next year? so i do support that. senator kennedy: thank you. mr. gensler: in terms of the climate rule, we lay out in this proposal all the economic

analysis. i don't mean to speak for the numbers in that. but by a company -- senator kennedy: what's your best guess, if you could? what's your best guess of the cost to comply? mr. gensler: so per company we lay that out and depending on the size. i just don't want to misspeak. it's from a couple hundred thousand to -- the total cost i think senator toomey accurately quoted. i don't think you were in the room. it's in the single digit billions. with we benefit from people are giving us critical analysis on -- senator kennedy: sorry to interrupt. i am going to run out of time. here's my question. it will cost billions of dollars to comply. those are scarce resources to the extent that people, like senator tester, has to spend the money to comply.

they can't spend the money on something else. presumably, the purpose of the rule is to focus investors' attention on the risk of climate change so that they will demand that companies do a better job. the purpose of which is low -- to lower the world's temperatures. am i -- mr. gensler: senator, that's not the purpose. the purpose -- i mean, i can speak for the five-member commission but also for myself. we're not a merit regulator. so the purpose actually is not to do what you said. senator kennedy: i got it. mr. gensler: it's for investors to get the information. senator kennedy: i think the speem support the rule -- mr. gensler: that's not why i support it. senator kennedy: ok. fair enough. i think that's what most people expect. you put pressure on the companies to disclose. shareholders put pressure. people do a better job. but i'd like to see why you're

asking senator tester and other people to estimate, i would like to see some sort of estimate of how much all this money spent on compliance is going to lower world temperatures. i mean, we're spending -- i believe in clean air and bright water. i want to be able to eat and live indoors. but what bothers me is while we're spending these trillions of dollars of scarce resources, india and china -- china gets 60% of its energy from coal. china has 3,500 coal fueled power plants. we have less than 100. we don't have any kind of agreement with india or china for them to reduce emissions. so we spend all of this money

and world temperatures are not reduced. and give me your -- senator brown: answer the question briefly. mr. gensler: the good news is that's not what our authorities are and our -- what motivates this one commissioner. it's about actually helping investors get more consistent information. even if they want to invest in what might be a brown assets rather than green assets. they'll get a more consistent information and will probably lower some of the green washing that's out there and other things like that. senator kennedy: thank you for your indulgence. senator brown: senator van hollen of maryland is recognized. senator van hollen: great to see you, mr. chairman. great to see an s.e.c. chairman from the great state of maryland. mr. gensler: great to see my senator. senator van hollen: let me pick up on the first point that senator kennedy raised in terms of implementation of the holding foreign countries accountable

act. i want to thank you and your team for pursuing that. i agree shortening the time period to two years. i want to thank senator kennedy for his work on this. the idea, of course, was to make sure we protect american investors, especially smaller investors. by ensuring that all companies listed on our exchanges comply with our accounting rules. and i know you had very tough negotiations with china. thank you for keeping us informed. the ultimate proof is in the pudding, right? their execution of it. but i do want to salute you and your team for all your efforts today on that. i also want to thank you for moving ahead on a rulemaking to crack down on abuses of 10-b-51 trading plans by insiders. at the beginning of this congress, senator fischer and i introduced legislation drething the s.e.c. to undertake such a rulemaking. you did it. we're monitoring that carefully. i don't know if you saw "the wall street journal" article

back in june which i think, along with other studies, revealed clear abuses by insiders in these areas. and of course, when insiders benefit, it means the investors lose often because sometimes these are game -- to take the gains before the overall value of the company decreases stock value. so thank you for that. we're monitoring that. we want to thank you you and your team for recognizing the real issue of fraudulent scams, security scams, often directed against seniors. these amount up to $3 billion every year. and we have a bipartisan bill here that i know the chairman and ranking member are probably tired of hearing of but i appreciate their i think support for the bill which is to empower states to better crack down on this fraud by creating a grant -- federal grant through the s.e.c. to help them out and

we've heard testimony on behalf of state insurance commissioners and state securities commissioners strongly indicating their support. . so you recognize this as a big problem we should deal with, do you not? mr. gensler: we do. fraud, within the elder community, we see all too much of it at the s.e.c. in our weekly enforcement meetings. senate van hollen: i'm sure you do. we want to pass this legislation to better fortify states to crack down on this kind of fraud. we're working with you on the kicker legislation as well, senator scott from florida and i, i want to ask you about something you and i have spoken about before which is country boy country reporting disclosures by big, multinational corporations. we're seeing jurisdictions

around the world, including the e.u. and now australia, move toward increased disclosure requirements for large, multinational corporations to disclose the corporations where they book profits and pay taxes as a way to mitigate risks to investors. we have a changing international tax environment and clearly companies that have put a lot of eggs in putting their profits in sketchy tax havens. their investors are at risk. and that's why we believe as part of providing investors with necessary information we should provide country-by-country disclosures. i was pleased to see the s.e.c. take steps to protect investors' interest in may by allowing them to put forward a proposal at amazon's shareholder meeting to ask them to disclose their

country-by-country reporting. in this changing landscape can you look at the question about whether new investor disclosures are needed in this area? mr. gensler: senator, i thank you. we are looking at it and as i discussed with you when we got together on the phone, the financial accounting standards board actually has a project and we sometimes let them know and i want to say publicly here, i support the financial accounting standards board project around breaking out and disaggregating tax reporting for public companies. i believe that i don't want to speak for them but in the next handful of months they're going to go forward and it breaks out, i don't think every country but i think the top couple of handfuls of countries and then they'll sort of promulgate back, get public feedback and back and forth. and i think that that -- it

would be a productive approach to have such disaggregation that fasby is considering right now and has an active project on. senate van hollen: thank you. i may have some questions for the record. but thank you. senator brown: thank you. >> let me talk about crypto regulations under your tenure. few cases have been brought against the exchanges and crypto assets are we know, traded primarily through the exchanges. the s.e.c. has proposed that intermediaries should be regulated under the exchange act so could you address this. why should crypto asset intermediaries and exchanges be regulated under the exchange act and if you would how would they

benefit? mr. gensler: without prejudging, i believe the vast majority are securities because somebody is betting on the future, betting on profits in a common enterprise and group of entrepreneurs in the middle. given that, these intermediaries that often have 50 or 500 tokens or 150 tokens, they're going to have a bunch of securities on that platform. how does it benefit? there's transparency, as you go into the new york stock exchange or into nasdaq or long ago for

that very reason. right now there's a fair amount of noncompliance. we're going to work with immediataries, get them inside, regulated, use our regulatory tool kit to adjust because there are some differences as we talked about earlier. senator cortez masto: would you be able to identify money laundering activities? mr. gensler: it's more the remit of the department of treasury, however one key thing under money laundering laws, the broker dealers have certain compliance obligations over with financial crimes enforcement network. treasury. once they register or whether

they should register and i believe it's even if they don't register but they're legally required to, they have to comply with that. senator cortez masto: let me jump back, to because i do think senator kennedy, and i appreciate his willingness to explore, to understand the issue of e.s.g. and the requirement, my understanding, and thank you for your position and how you perceive that regulation, but because now we have a whole new generation of investors that are really conscious about green and going green, there are new investors now that are looking for ways to invest, to be consistent with their values in this role, correct? mr. gensler: there are. there are also investors just thinking because of climate risk it could affect the financial performance of a company, it could affect their supply chain,

their competition and future regulations. they're thinking about how to value today that future transition risk. senator cortez masto: thank you. there was also conversation and i appreciate this as well, about the issue of greenwashing. i know some major global asset managers and others have said the integration label could impose greenwashing risk. can you talk a little bit about that and address that? mr. gensler: there are asset managers, managing trillions of dollars, that are saying to the public, we will invest your money, your money, in something that's carbon neutral or green and the like. and so to me it's about truth in advertising. so we put out some proposals earlier this year to address what stands behind the name. literally the name of a bond. of a fund. and are you living up to the obligations you made to your

investors when you asked for their money? and i think that's important about the integrity and it would address some of this, what is sometimes called greenwashing. senator cortez masto: thank you. senator brown: thank you, senator. senator rounds of north dakota is recognized. senator rounds: i was going to speak today about farmers and ranchers, i understand that senator tester beat me to it. we do have a concern about the ambiguities that some of our farmers and ranchers have right now with what they're going to be expected to try to share with providers of products to them with regard to downstream environmental impacts. really is of turn concern. the ambiguity it's left with, the guesstimates and so forth, is something, i think you need to take a second look at. mr. gensler: i concur with you, we talked in the ante room

earlier, we thought the proposal had the right balance. we said it's only an estimate. it's only public companies, only if it's material or they made a commitment to it and they have a big safe harbor. but we heard a lot from the farm bureaus so we're taking -- that's what we do. we take a look of all the public comments and see how we can ensure that it doesn't touch those private actors. senator rounds: it's one thing with the rule, but if the rules are ambiguous that means each time they have to come back to a regulator and ask if what they're doing is accurate. that causes serious concerns for people who want to invest. i simply say look, if you're making rule ops these and clearly you are making rule a lot of them, let's be as precise as we can in them and i think that'll eliminate a lot of

questions that are coming up, sir. in a speech last week you quoted joseph kennedy that no honest business should fear the s.e.c. you said given the nature of crypto investments it may be appropriate to be flexible in applying existing disclosure requirements. matt levine openly questioned that sentiment in a column for bloomberg, saying the s.e.c. has been suing for also information for five years but hasn't put anything on the website about adapting the rules for crypto clients. it seems to me you want to regulate an entire marketplace but clearly it doesn't appear you've got rules in place to do so at this time. in my minds this unacceptable.

i know that your background in the private sector, you've got a great history in the private sector so this is cop fusing to us. i've heard from a variety of companies who claim they try to work with you and your organization but then you turn around and then you hit them with some pretty heavy enforcement actions or slow walk the process. mr. chairman, you keep telling crypto entrepreneurs and companies to come in and register. has anyone tried to do that? mr. gensler: to answer your question, there's six companies that are actually registered under the disclosure regimes. i would say this. not liking the answer from the s.e.c. doesn't mean there isn't guidance. with all fairness. and most of these token, the vast majority are securities and thus the intermediaries are likely to be in noncompliance with securities laws right now. so we're really trying to work with them. we're talking to a wide swath of

these organizations right now to get them properly registered, to get them inside the remit. and this is what we do with all respect to mr. levine, we've been pretty clear, my pred sesesor, chair clayton, was. through commission actions. and in his public voice by this committee and others about this matter. and we're going to continue to protect the public as best we can. senator rounds: thank you. as of august, 2022, the s.e.c. proposed 32 new rules in 11 months and is preparing at least another 19 for release in the next year. these are complex rule makings that will greatly impact markets and capital formation. in addition to that, these rules are being implemented in an overlapping timeline and affect the same or interconnected financial products and market

sectors. however despite the linkages between the various proposal, this es.e.c. has assessed the economic impact of each rule independently and in isolation from the others. implementing these proposals simultaneously without the cumulative and cross-seconder effects will most certainly lead to unintended consequences. mr. chairman, why has the s.e.c. not considered the cumulative and cross-sector effects when simultaneously implementing these proposals that most certainly could lead to negative and unintended consequence for our capital marks and broader economy? mr. gensler: senator, we actually do consider across, even within any one of the 30, it's as of yesterday, 34. moving along. i would note that chair clayton during his four years did a little over 60 final rules. we have about 50 on our docket.

so it's -- chair shapiro and chair white were about the same, 40 to 60 during their four years. we might have been a little sooner getting them out to proposals. but we do consider those cross issues. sometimes we even reopen proposals for that reason like we did with stock lending and stock buyback. we reopened because there's this cross consideration. we've done it in some other areas, we're even looking now whether we should do that in some areas and reopen some for that cross consideration. lastly i would say we get comment letters after the comment period as well. and we, you know, this is over the years, we do it now. we -- staff reads them. they put them in. it takes us -- tends to take us months, sometimes a year to 18 months, to finalize a rule after it's proposed.

senator rounds: thank you. i wish we could continue the conversation. mr. gensler: i think you still have my cell phone number, you can call me any time. senator brown: senator smith of minnesota. senator smith: thank you, chair brown, ranking member. it's interest, apropos of the questions about crypto, i was not here earlier, i was at the banking committee where we're having a conversation -- i mean i was at the ag committee, pardon me. where am i? i'm a little confused. i just note that there are a handful of us, you, senator brown, and senator warnock and i that serve on both agriculture and banking housing, and the issue of how we should create a regulatory framework for crypto commodity, digital commodities as well as security, we have an important job to do here. chair gensler, i want to go to the question of materiality. securities laws they are

grounded in the concept of materiality. since we've emerged from the great depression we have acknowledged that investing in the stock market comes with a risk. investors ought to have information about the -- that they need to be table prudently evaluate the risks and make good, informed decisions. this is especially important today as more than half the families have investments in the stock market including their retirement nest e.g. could you talk to the committee, broadly speaking, about how climate disclosures for public companies are material information for investors. mr. gensler: it's material because the supreme court says substantial likelihood a reasonable investor is considering it significant in their mix of information. right now it's really remarkable what's happened in the last 10 to 20 years, so many investors are considering it. and why are they considering it? because there's a future chance of transition risk.

they might have to change their operations, their competitors might change their operations, laws might change. these companies that are listed here in the u.s. operate around the globe. on average if you look at the top 500 or 1,000 companies, half their operations are overseas. it can affect all that. but it's material because as the supreme court says, investors get to decide what risk they take and investors are saying it in. our comment file if you look at the top 300 or 400 of the investors, the big asset managers, it adds up to $50 trillion under management that have come in, mostsly supportive of. this i know there's a lot of good discussion about what do we do about the farmers and not getting caught up in scope three. and -- which is a good conversation we've had. but mostly the investor community has come in in these

14,000 comments supportive. senator smith: and it's good for those investors to be able to understand what those risks are in a more comprehensive and clear way. mr. gensler: absolutely. and investors get to decide. if somebody says, i think those risks are significant but a company's managing it well, i should invest in it. they might say that, i think that the market is overpricing a stock and they may i want to sell that stock because i don't think this -- i think that assets that are emitting a lot of emissions are still going to be really profitable. that's up to investors. senator smith: on another topic i want to touch base on, i was pleased to see the. e. -- s.e.c. take action to increase accountability in private market. private markets such as hedge funds have an outsized portion of our economy.

18%. and that includes pension plans for teachers and government employees an others. in recent years private management has been on the rise. can you talk about the amendments to form p.f. and the private fund adviser rules and how they interact with eliminating conflict of interest issue prorks tect investors and protect the integrity of the private fund market. mr. gensler: we've done two sets of rules with regard to private funds. one to promote greater efficiency, that meeps lowering the cost of this, it's actually grown since that number, about $21 trillion. they probably take revenues of about $300 billion plus. and that means those teachers, firefighters, those pensioneers, are getting a little lower potentially return. it helps them. so we're trying to promote greater efficiency, transparency of fees, and side letters.

you mentioned a form called form p.f., form private fund. that's something that was put in place after the 2008 crisis. congress thought the s.e.c. and our sibling agency, the cftc, should get more information about these funds with regard to mitigating and monitoring for systemic risk. the big crisis of 2008. and we -- we're updating those forms. senator smith: thank you. senator brown: senator lummis of wyoming. senator lummis: i appreciate you holding this hearing. chairman gensler, great to see you again. i want to dive in to a component of the lummis-jill brand --

lummis-gillibrand bill which you've had a chance to see. i agree with statements you and your predecessor jay clayton have made, initial coin offerings, where digital assets are sold to investors expecting to profit if the seller's efforts should be considered investment contracts. senator gillibrand and i share your concern about information gaps that can arise when digital assets are later used and traded by others and the need to ensure users can make informed decisions in the market. so we believe that it is those that raise the money through initial sale of digital assets and toaz who -- and those who continue to provide managerial efforts should be held response to believe provide disclosures to the mark and that innocent secondary purchasers of digital assets that may or may not be aware that they're trading in securities should not be subject

to strict liability. so in our act, the responsible financial innovation act, rather than attempting to impose new, complex, difficult to apply rules on secondary purchasers, not involved in fundraising transactions, section 301 of our bill provides for robust technology neutral disclosure obligations that would hold responsible those who benefited from that fundraising. not the innocent users of digital asset who was no way of knowing what the sponsor is up to. so my question is this. do you have any thoughts on the need for disclosures in the digital asset markets in section 301 of our bill? mr. gensler: i thank you for the question. it was good to meat with you and senator gillibrand and discuss this as well. i think that the disclosure, as

you say, is key. we've been re-- we recently were setting up a new industry office to help disclosure in this field in our corporate finance area. i do think that as you say the innocent purchaser, let's say the public, the public is -- does not have a disclosure obligation when they buy a stock from the new york stock exchange and it's not the public that should have a disclosure obligation if they buy some crypto security token. but the entrepreneurs, the sponsor, the promoter, the entrepreneurs, that's where the disclosure obligation ought to be. and i think we have authorities now to facilitate and actually have different set of disclosures. just as we have in other fields. we have different disclosures on something called asset backed secures than equities. but i do think where i might

respectfully differ from i think what might be the question is that i think in the secondary market, five years after a stock is issued, you know, a stock of a great u.s. company is issued, there's still a disclosure obligation. and i think that's what congress did, in 1933 passed a law saying you've got to make a disclosure if you raise money from the public. but congress knew that wasn't enough. in 1934 they came pack and said, you know what you also have to cover the secondary market in two ways. cover the intermediaries, like the stock exchange and broker-dealers but also say there has to be periodic reporting, the annual report. so -- or maybe there's no difference here but i think the investor should not have an obligation. it's the intermediaries and then it's the common enterprise of the folks in the middle.

senator lummis: are you thinking the disclosure option or obligation would be similar for initial coin offerings under our bill or should be under our bill similar disclosure options as were instituted in 1934? mr. gensler: i think similar in kind but probably, there's some things, it might be a little bit different list. there might not be a board of directors, things like that. i do think, your bill had a list. we might differ on that list. we might have other things to put on that list. but it's not necessarily as you say everything that a big multinational company is doing. senator lummis: i want you to know that senator gillibrand and i want to continue to work with you and your staff to make sure that to the extent that we don't

philosophically disagree that any of those sorts of gaps that you have identified in our bill can be addressed because i don't have -- i don't see our bill having an avenue to come before this committee or the congress before the end of the year. but we do intend to have this, to reintroduce it in january. and we want to make sure that between now and january, we've worked with you and your staff to make sure that we can address items that we can mutually agree need to be -- mr. gensler: i look forward to that, particularly as i said earlier in ways that we can ensure we don't undermine the $100 trillion capital market, the definition of secure, the definitions of other things that are under this committee and stay under this committee. senator lummis: and we've talked

ability unintended consequences of our bill before with you. we want to address the unintended consequences. you see things maybe we don't because of your perspective. mr. chairman, thank you, appreciate you being here today. senator brown: senator osoft of georgia is recognized. senator oh soft: -- senator ossoff: thank you for being here. i have routinely asked you this and periodically put this question to chair paul and secretary yellen. what do you see as the most significant threats to financial stability, or to put it another way, what keeps you up at night? mr. gensler: you don't want me to say my daughters. look, i think in terms of, we are living in uncertain times. i don't need to say this. but with the war in eastern europe and ukraine, with senator banks around the globe moving

from accommodating to tightening, with the remaining, you know, challenges, geopolitical challenge, between great nations and also with covid and commodity prices. all of that in the mix, what i look at and think about is the relationship between the banking sector and the hedge fund sector and investors, relationship between the banking sector and commodity traders. that's called a prime brokerage relationship. those relationships i really do think a lot about. i think about resiliency in the market and that's why we have about a dozen or 15 projects in the treasury market. what we're trying to do. and money market funds and open end funds. shortening the settlement cycle and the like. i think if we do our job well at the s.e.c., we'll build greater

resiliency for the stresses that come in the future. and those stresses come because that's what an economy, we always have ups and downs and economies. so we have these longer term projects, but near term it's these issues i just raised. senator ossoff: let's talk about the treasury market you highlighted that in previous testimony. you issued proposed rule making in the last several days. can you please break down into laypersons' terms, the nature of concern about ill liquidity in treasury market -- about illiquidity in treasury markets? mr. gensler: it's a big market. it's a quarter of our entire capital marks. $24 trillion. you can think of it as the base. sort of the foundation of our financial house. everything else is built upon the treasury market. and what we found is we've had real disruptions, call them

jitters, i hate to say it, but it's like termites in the foundation, every few years. we had them in the 1980's, 1990's, had them in the last six years. and it put some pressure on our central bank. the federal reserve. that sometimes then opens up and provides using its balance sheet liquidity to the marketplace, sort of as a lender of last resort. i think we can lower the risk in that marketplace. by bringing -- ensuring that all the dealers, the high frequency trading dealers are registered and regulated. secondly, that we're the trading happens, these are trading platforms, are regulated. and some of those aren't. and really importantly getting the benefits of something that sounds boring but it's clear, the back office, which lowers risk in the system. so those are the main things. we've worked closely with

secretary yellen and her team and chair powell and his team on those proposals. >> do you think the persistent concern about illiquidity in federal markets threatens the fed's ability to operate the market in a crisis? mr. gensler: i think, if we do the suite of proposals in the treasury market it'll bring greater competition. historically there was a group of primary dealers and that started to broaden out to principle trading firms, high frequency trading firms an others. i think we'll build greater reao increase computation in the marketplace. senator ossoff: let's follow up on this and i'll have my office meet with yours. in my brief remaining time i want to ask about something of particular concern to georgians. we have a thriving military community, base communities, veteran communities in georgia.

the s.e.c. has in the past and as recently as december of 2021, filed more than action to shut dow -- shut down a multimillion dollar ponzi scheme that targeted retirement funds held by veterans. i.d. like -- i'd like to ask for your commitment that under your leadership, the s.e.c. will redouble and intensify its efforts to ensure that within your jurisdiction you are identifying and cracking down on schemes that could defraud or harm america's veterans. mr. gensler: you have that and i'll also say, to all georgians and veterans, if you see something, we have a tips complaint referral system wearveg whistleblower system. please let us know. let the s.e.c. know. we're a little understaffed. i think we should have more staff. but let us know and we'll try to follow up those leads. senator brown: senator haggerty

of tennessee is recognized. senator haggerty: chair gensler, i was reviewing your testimony last night and was struck by a term you used as you described the nation's security laws and regulations. you described them as the goal standard. i don't believe that's true anymore. what we've seen is the number of publicly listed company decline by more than 40%. if you look at the u.s. share of global i.p.o.'s, we have shrunk to less than 20% in the last decade. why is that? because every new regulatory requirement adds to the already crippling cost of operating as a public company. so the consequence is to encourage companies to stay private or look abroad for their i.p.o. you rolled out 32 proposed rules in the past year, including a propose rule that will cost hundreds of millions in compliance costs and created uncertainty in the marketplace.

this will undoubtedly make matters worse. america had such a big lead in terms of best capital markets. capital marks that have allowed businesses to succeed here and thrive. but it's been in spite of, not because of this, this increasingly crushing red tape. more regulation is a recipe for the pre-eminence of american capital markets to die a slow death. if we continue down this path there won't be investors left to protect. american workers, american consumers and retirees can't afford that. so chairman gensler, under your tenure at the s.e.c. you've rolled out an unprecedented slate of aggressive rule proposals. among the troubling trends, an expansion of the s.e.c.'s purview under the guise of, quote, consumer protection. because not all markets are available to retail investors, the s.e.c. traditionally adopted different levels of paternalism. the most egregious examples of

the creep that's happening now are the private funds rule and the s.e.c.'s announcement that it would force disclosure requirements under fixed income securities including those under rule 144-a. you say it will enhance investor protection. but qualified investors that invest in these products are not unsophisticated, they don't need hand holding. yet these new rules will impose significant new costs and will act as an impediment to innovators who need early capital to grow. do you think the distinction between large and institutional investors versus mom and pop investors is not important? or what is causing you to go after the larger investiars -- investors that your predecessors have given a degree of autonomy to. mr. gensler: i think there is a

distinction between accredited investors and nonaccredited investors but i do think in the private funds rule, if i can address that, this is now a $21 trillion assets under management that the general partner, the asset managers, who oppose what we're doing, i understand that, but those asset managers probably collect over $300 billion in revenue. what does that mean? the issuers on one side and the investors on the other side and that $300 billion plus in the middle. i think you gave us responsibility to look to promote competition and efficiency in the markets. you did it in 1976 in law. you did it in 1996 in law, twice, that we have that responsibility. so in that proposal, we took a lot of the recommendations from a group of limited partners, state pension funds, state

treasurers, and a group called ilfa and looked at them and said how can we promote greater competition through transparency to those investors? those sophisticated investors? >> this is going to lower the cost? mr. gensler: i think we might have a healthy debate on this but when you've got general partners taking $300 billion out of the economy this will help promote greater competition. senator haggerty: increased regulatory cost promotes greater computation. mr. gensler: it's greater transparency to the investors of the fees and performance. senator haggerty: these are sophisticated investors, mr. chairman. this is damaging to the mark place. small companies that need to access capital will be deprived of capital because of this type of overreach. thanks, mr. chairman. senator brown: senator warner from virginia is recognized. senator warner: thank you, mr. chairman.

i want to stay on this topic for a moment. i do this from a historic basis as we have talked, and good to see you again, mr. chairman, that you are in that range of what your predecessors have done but i do think it is an aggressive agenda. a lot of it, i support. i may disagree with some of my colleagues on the other side. but because you've been moving quickly, one of the things i'd like, in response to one of senator rounds' comments, i want to know more how you make sure that you determine appropriate comment times. i know with some of these regulations yao extended the comment times. some of them i do feel have been too short. but i'd like a little more specificity about this interaction, not simply in terms of total economic cost but possible consequences.

i'll come become and follow up for a moment on cyber security but i would -- i just -- would like to get the sense, if all of these regs get passed by the commission, how are you holistically looking at their interoperability? mr. gensler: i think it's a good question. we do it proposal by proposal in the economic analysis. we benefit from the public comment. and i would say we have a long tradition of, regardless of what the comment period is 60 days, whatever the comment period is when comments come in after the comment period we still, the staff considers it. we write it up. we put it in. i mean, if it comes in, you know, not at -- one day before we're finalizing, generally on average takes a year, year and a half to finalize these things. so i encourage people to continue to say if you see that interaction. but secondly we also occasionally, we publicly reopen

something. we did that earlier this year on the -- there was a security lending and a stock buyback and we sort of reopened it. we sort of said, those are so closely interrelated let's do that. as well. senator warner: let me give you an area i've got, i think, two well-intentioned rule bus worry about conflict. i'm chairman of the intelligence committee. i think the cyber security issues in my litany of things that keep me up at night, i'm surprised we're not seeing more from washington, the invasion of ukraine, we worked in a bipartisan way to get an across the board mandatory cyber incident reporting legislation through. and tried to find the right timing of when to make the report and making sure you don't interfere with a criminal investigation. you've got a similar s.e.c.

public company requirement, i do believe a lot of these cyber initialtives fall into materiality. but take a few minutes, i have another question after this but take a miami to tell me how you do the potential interaction between something that's outside your purview, the system requirement,er haves is your s.e.c. cyber security. mr. gensler: it's a very good question. the securities laws are about investors understanding material risk and material events. so we put out a proposal as you said about corporate public companies making cyber disclosure. how they manage cyber risk and when they have a material incident. got to be a material incident. and then report that within four days. we have also been in conversation directly with the department of justice and with the department of homeland securities, you know the particular leadership there, had really good conversations. we included one important question in that proposal about

national security and we could tell you about, you know, it would take more than 50 seconds later to tell you about that. working with the department of justice on that. senator warner: the more you can spell out, maybe not just here, but how the process of this intersection between, you know, an agenda, again, that i generally support, i think would make sense. i want to use my last 30 seconds to touch on a topic that -- i feel your predecessor, jay clayton, started down this path, it encouraged more action. human capital reporting. we discussed many times, my colleagues have heard me go through the litany about how assets on a balance sheet have changed dramatically from tangible assets to intangible, and a lot of that is human capital. chairman brown and i have had

disclosure legislation about this. talk to me about how you think moving forward, i do believe human capital investment is extraordinarily material for all these companies that say their work force is the most important asset. speak to that. mr. gensler: chair clayton did put out a rule, we have two years for that rule. we are looking at the first two years, seeing what worked, what didn't work. but i know this from my days on wall street. when you bought or sold a company, there are two or three pages with key statistics about the work force. turnover rates. what they get paid. what were the benefits, etc. what's the training like. are they unionized. these were key things when you buy and sell a company. why shouldn't the public share how olders also get similar information and you wrote recently about a letter that i think a number of former s.e.c. commissioners from brunfest to

jackson and others wrote. we are looking at that as well. senator warner: i look forward to working with you on that. thank you, mr. chairman. senator brown: senator danes of montana. mr. gensler: good to see you again, senator. senator dianes: we did not do that -- senator daines: we did no do that on purpose. we did not cut to the chase here. i know some of my colleagues talked about the proposed disclosure rule. i think it's beyond unreasonable. i would recommend it be withdrawn. the massive burdens that it will place not just on large

companies, but also smaller companies, is going to have, i think, major down streem impacts on the companies with whom they also do business. and i want to zero in on the scope emissions problem. the question, do you think it's reasonable to ask companies to collect, analyze, reconcile, report, on things literally whether the company employee is a tesla or a pickup. that's what they're doing when it expanded the scope three emissions. mr. gensler: what we have right now in america is that we have many companies, hundreds, that are disclosing greenhouse gas emissions to the public. and they're including also not all of them but many of them, something around this scope

three. so this for the public listening, this is the downstream or suppliers and the like. so what we're trying to do is bring some semblance to that, some standardization. what we said is it's not a mandate but if you have a commitment, if you publicly said you're managing it or if you -- senator daines: it's not a mandate, the rule would give companies leeway if they need to expand? mr. gensler: it's only a proposal, the adoption hasn't happened. but a proposal on what was called scope one and scope two. we took a different approach on scope three and said if the exen deems it's material or if the company already has made a public commitment to manage scope three. like if they -- and that's totally voluntary on their part. then we said you had to

estimate, and we have gotten a lot of comments on there. there's no goal to like touch -- we had a good conversation with senator tester and senator rounds. there's no goal to touch farmers in any of the states you represent or ranchers. and senator lummis. senator daines: would that be carved out explicitly? scope three is a wide net. mr. gensler: but it's from the public company's point of view. are you making a commitment to the public on how you're managing it? this public company? and then how are you estimating it? and we did say estimating it. we said there was a safe harbor. so we put some legal protection on it. but again we're looking at 14,000 comments, we're trying to balance this out. the one thing is that we have to ensure that the public companies that are saying this or that about scope three aren't, you know, frankly, misleading the

public. senator daines: there's a lot of concern from the committee on both sides on it. mr. gensler: i look forward to more conversations. senator daines: we watch this going on in europe, california, it moves from passion to climate change to climate insanity in terms of dealing with baseload issues and creating existential threat to their economy, they national security, and i just don't want to see our country follow the same path we've seen europe, as there's been a lot oe talking to european leaders and they wish they had a redo on this. mr. gensler: i think this is one of the reasons, we want something here in the u.s., that we adopt a role and it's -- a rule and it's sustained in court. if we don't, we'll probably have to comply with the european regime. because it says if you have more than 150euro of sales in europe you've got to comply with their regime.

senator daines: they're going to have a tough winter we pray for a warm winter in europe. i want to talk about b.d.c.'s for a moment, big development companies. they play an indispensable role in providing credit to businesses in montana and around the country. one pressing issue that's impacted b.d.c.'s and investors is the application of s.e.c.'s acquired funds. when you apply the aafe's to b.d.c.'s, it overcomes the true cost to b.d.c.'s, misleading investors. senator menendez and i introduced the small business investor capital act to allow them to move 100% of the aafe's to a footnote in the fee table. does the s.e.c. plan to fully address the misleading disclosure that affe creates for

b.d.c. investors in lieu of the current unworkable rule the s.e.c. proposed? would you agree that b.d.c. investors deserve parity in disclosure. there's a lot there. mr. gensler: there is a lot there. i look forward to helping with technical assistance on your bill but also on business development companies being owned by other funds. mutual funds. there is transparency in what -- there was a 2006 rule on this way before i got here that there was a transparency that the investors in the mutual fund need to sort of see as those costs and rolling up in those costs. i think that's what you're trying to address in your statute. senator daines: i'm out of time here. is it chairman reid? senator brown: senator reed from

rhode island is recognized. senator reed: we have introduced legislation, s. 4857, private markets transpersoncy and accountability act. based on the legislation, would require the nation's largest, most important companies to register with the s.e.c. and they would then be subject to appropriate disclosure requirements. and i think it's necessary because weir seeing the decline in public registrations and extraordinary increase in private companies that are controlling some other companies. can you describe the main difference in public markets and private markets when it comes to investor protection? mr. gensler: we benefit in this country from vibrant capital marks, public and private

markets. my dad never had a company that wouldn't be cut up -- caught up in your bill, he had a business with 30 employees. that's been helpful. there is a difference in disclosure and in investor protection. because congress gave this agency a remit about those public companies and to protect against, that the disclosure is there, it's truthful, we protect against fraud and manipulation. it's different if it's a private company. not that my dad would have done that but he was buying and selling the stock whiz partners. senator reed: i think when the s.e.c. came about most of the private companies, small, family-owned, that is not the case today. mr. gensler: it's estimated by outside public sources there's about 1,00 companies in the u.s.

that are what is called unicorns. worth more than $1 billion. and the total market value is about $4 trillion. senator reed: and the disclosure and invest protection, those companies are not at the same level of strength? mr. gensler: it's not under our remit but it's privately negotiated between the holders and those companies. and so it's not at the same level. senator reed: i want to quickly shift gears a bit. this is the 20th anniversary of sarbanes ox lee act. i think you're quite familiar with that. it was response to the scandal os enron and worldcom and demonstrated why investors need gate keeping in the finance, markets, especially accountants. one concerning trend is that the big four accounting firms

providing also lucrative consulting services to public companies that they're also responsible for auditing. what steps does the s.e.c. take to ensure the audit is prioritized independence over seeking nonaudit revenue? mr. gensler: i thank you. i was sitting in the seats behind the chair and ranking member when it was senator graham and senator sarbanes. you were over here. but i think what senator sarbanes and senator graham voted for that bill actually. what they tried to do in that bill was to ensure that there was some separation between the audit function and consulting and so forth. i have asked, because i think there's been some lessening of that separation over those 20 years. i have asked a number of things.

the office of chief accountant at the s.e.c. and the board at the pcob, i've told all five members there could you put on your agenda as well to update the standards, the pcob standards and the s.e.c. standards about this separation and the independence and i also know our acting chief accountant, paul munter, has given some speeches on this recently and leaned into this. senator reed: just a final question. there have been several major cases with accounting firms over the past year, after the professional problems. but those findings are basically not disclosed to the public. they're maintained by the regulatory agency. and senator grass lee has legislation that would make thes legislation that would make them public.

i think it's important to know if a firm has been engaged in that. mr. gensler: i think it would be. senator brown: senator warren of massachusetts is recognized. senator warren: thank you, mr. chairman. in march, the s.e.c. proposed a climate risk disclosure rule that takes big steps toward increasing the efficiency of the economy and the financial markets by requiring companies to inform investors about the climate-related risks that affect their businesses. now as part of this rule, the s.e.c. proposes that companies disclose their greenhouse gas emissions. the company's submissions are classified into three different categories called scopes so chair gensler, just to set a baseline here, let's run through an example. let's say i'm exxon. my scope one emissions would be from things like my company's vehicles and methane leaks that

occur at the well hoad they have wells i own. scope two would be those from electricity i purchase, for example, in in order to power my operations. scope three would cover updream emissions from the production of what i buy, like the chemicals i use to refine my oil into gasoline or diesel fuel. and the downstream emissions from what i sell, like the refined gas or the diesel my customers buy at the pump. do i basically have that right? mr. gensler: yes. senator warren: good. you immediate all three scopes because otherwise a company could just stop doing the filthiest part of their business and hire some smaller, nonreporting company, to do the same filthy work and report themselves as greener. so chair gensler, for a fossil fuel company like exxon, what

percentage of their total emissions are scope three emissions? mr. gensler: i suspect you might know that better than i, i have looked. but it's often over half. it could well be in some companies, i don't know exxon, some companies as much as 90%. senator warren: you're close on that last number. according to a global analysis, about 88% of the emissions of those fossil fuel companies like exxon are scope three emissions. so in other words, oil and gas companies have scope three emissions that on average as you say, about 90%. >> we're going to leave this here to keep our over 40 year commitment to live coverage of congress. watch more on our free c-span video app, c-span now. the house is about to gavel in,

members will vote on additional protections for whistleblowers and a bill making changes to u.s.sen es us is bureau operations including the -- limiting the reasons the president could fire the director. now live to the house floor. [captions copyright national cable satellite corp. 2022] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit ncicap.org] the speaker pro tempore: the house will be in order. the chair lays before the house a communication from the speaker. the prayer will be offered -- the clerk: the speaker's room, washington, d.c., september 15, 2022. i hereby appoint the honorable andre carson to act as speaker pro tempore on this day. signed, n